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Stocks Stumble to Mixed Close

Robert Holmes

Stocks endured another wobbly session Wednesday before ending narrowly mixed, as traders weighed a strong outcome from the Federal Reserve's first loan auction against a lowered ratings outlook for two big bond insurers.

The Dow Jones Industrial Average wavered between positive and negative territory, ultimately ending down 25.20 points, or 0.19%, to 13,207.27. The S&P 500 slipped 1.98 points, or 0.14%, to 1453.

The tech-heavy Nasdaq Composite managed to gain 4.98 points, or 0.19%, to close at 2601.01. The index was buoyed by gains in Yahoo! (YHOO), Amazon.com (AMZN), Research in Motion (RIMM), and Intel (INTC).

"There is a lot of volatility, and instead of stabilizing, we keep seeing more selling," said Paul Mendelsohn, chief investment strategist at Windham Financial Services. "We should be seeing at least a small Santa Claus rally. It's disheartening that there are no buyers out there."

Breadth was mixed Wednesday. On the New York Stock Exchange 3.33 billion shares changed hands, as decliners edged advancers by a 9-to-7 margin. Volume on the Nasdaq reached 1.83 billion shares, with winners matching losers.

Among subsector indices, the Dow Jones Transportation led laggards with a 1.7% decline. The NYSE Financial Index, the S&P Retail Index, and the Philadelphia Housing Sector Index also finished in the red.

Stocks started on an upbeat note, but early gains unraveled after Standard & Poor's cut its outlook on MBIA (MBI) and Ambac (ABK) to negative from stable. That sent shares of MBIA down 2.5% to $27.01. Ambac rose 1.9% to $27.50 after it said it was taking measures to increase capital and regain a stable rating.

Steven Sheldon, principal with SMS Capital Management, said that it seems as though every financial name throws cold water on the market, reducing the likelihood that a year-end rally will materialize.

"The market can't seem to get any traction," said Sheldon. "The fact that we are still positive for the year still supports the idea that sentiment is decent. Every day that goes by without a Santa Claus rally, though, isn't encouraging."

The S&P news overshadowed the significant demand that came with the first of four planned Federal Reserve loan auctions. The market initially rose after the Fed said it has accepted $20 billion in propositions from U.S. banks who will borrow money for 28 days at 4.65%, which is below the current discount rate. Overall, 93 banks bid $61.6 billion in the auction.

"This is a temporary move and merely another vehicle for the Fed to add liquidity to the market," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "If this encourages banks to make additional loans and to lend to each other, then it is another step in the right direction in order to avoid a recession."

Even so, troubling signs continue to emerge on an almost daily basis -- and that was before the S&P action on the bond insurers. Mortgage research company RealtyTrac said foreclosure filings in November jumped 68% from a year ago to 201,950, but on a slightly positive note, filings fell 10% from October.

Additionally, the Mortgage Bankers Association said that mortgage applications slid nearly 20% last week, an indication that refinancing is grinding slower.

The reports come one day after the Fed proposed a plan to give borrowers more protection against predatory lending practices.

The housing data wasn't much better on the earnings front. After the last close, homebuilder Hovnanian (HOV) posted a fourth-quarter loss that quadrupled from a year ago. Shares closed down 97 cents, or 11.6%, $7.43.

Among other companies out with earnings late, handheld device maker Palm (PALM) posted a fiscal second-quarter loss and offered disappointing guidance. Video-game maker Take-Two (TTWO) had a fourth-quarter loss that shrank from a year ago but still disappointed Wall Street analysts.

Palm lost 6.9% to $5.52, while Take-Two climbed 4% to $18.75.

Shares of Darden Restaurants (DRI) fell more than 20% after the company reported fiscal second-quarter earnings that fell sharply from a year ago. Darden also said fiscal 2008 profits would come in below forecasts.

Ahead of the open, Morgan Stanley (MS) reported a fourth-quarter loss of $3.61 a share and said it had to write down the value of its mortgage-related assets by $9.4 billion. Also, a Chinese investment group is putting $5 billion in the company. Morgan was higher by $2.09, or 4.4%, to end at $50.16.

Morgan is the latest investment bank to post results in the last week. Already, Lehman Brothers (LEH) and Goldman Sachs (GS) have posted earnings, while Bear Stearns (BSC) is due to report Thursday.

Traders are also gearing up for Friday's expiration of four separate derivatives contracts, an event known as quadruple witching. Single-stock futures, stock options, index futures and index options all will trade for the last time. The simultaneous expiration happens quarterly and can increase volatility.

With no economic data, U.S. Treasury securities rallied. The 10-year note was up 24/32 in price to yield 4.03%. The 30-year bond added 1-17/32, yielding 4.45%.

Commodity prices were mixed. Crude oil rose $1.16 to $91.24 a barrel following a bullish inventory report. Gold futures ended lower amid a stronger dollar, while silver finished with a slight gain.

Overseas markets were mixed. In Asia, Hong Kong's Hang Seng rose 1.1%, but Japan's Nikkei 225 slipped 1.2%. In Europe, London's FTSE 100 tacked on 0.1%, and Germany's Xetra Dax was off 0.2%.